Why Money is such a bad metric for Energy investment deciisions. EROI, Towards an Energy Based Economics. More Notes from the Digital Coal face.
This is a note book post of discussions on and critiques of Energy generation replacement solutions for when Oil / Gas and Coal Run out? The basis of our calculations are best informed in terms of EROI (energy Return on Investment) The Production of future energy plant from the present optimal energy portfolio is very important and also a Grown up discussion about Nuclear energy ( Including and particularly Thorium) must be påart of that discussion.
It is energy that provides prosperity not monetary measures of the distribution of energy wealth. Energy Infrastructure like other fundamental infrastructure provides the fundamental building blocks for our current level of Civilisation it is a common good and Energy Markets distort the realities of what optimal levels of energy output can be. The more energy we can produce the better, high levels of EROI lead to better wellbeing outcomes.
Assumptions of Artifical scarcity and indeed actual reductions in energy outputs of energy resources leads to the destruction of human life, similarly waste generated by a need to provide artifical scarcity to support monopoly profit levels of price also lead to environmental destruction.
I have already started compiling notes on this question in these 3 previous blogs.
Chapter 18 The Scale of Interest in the Corporate Sector “The entrepreneur is a worker who earns his wages with the profit of the enterprise, which remains from the gains after the banks have deducted the interest payments, which the entrepreneur has to first take from the workers. Insofar, the profit of the enterprise is not an antithesis to wage-labour, but only to interest.” Karl Marx * In the corporate sector, too, the interest burden has increased over-proportionally in step with indebtedness. This is true when measured not only against the output, but also in relation to tangible assets procured through credit, or credit secured by the value of tangible assets (see Chapter 15). According to documents of the Federal Authority of Statistics, the interest burden of West German manufacturing companies for the year 1970 was 37 billion DM and amounted to eight per cent of net worth, for 1993 with an interest burden of 272 billion DM it amounted to 15 per cent. If the interest burden of 272 billion DM was allocated to the 23 million employees in the corporate sector, then in 1993 every workplace had to bear an interest burden of 12,000 DM, in 1988 – that is five years earlier and at the beginning of the high interest phase – it was just half the burden. To what extent the gap widened between net worth and interest payments made by West German companies in the years between 1970 to 1993 (after that the West German figures were no longer reported separately) can be seen in figure 49.
How large is the total of interest-bearing assets? The replaceable fixed assets (buildings and equipment) in Germany were estimated to have a net replaceable value (current value!) of 10,300 billion DM at the end of 1996/beginning of 97. Together with supplies in the economy and public civil engineering, it amounts to 12,500 billion DM. If the land and economically productive resources are added to an amount of 3,500 billion DM (the current market value of real estate in the hands of private households alone in the year 1997 was given to be 2,500 billion DM by the Deutsche Bundesbank!), then the result is a sum of 16,000 billion DM for the total value of national tangible fixed assets. These figures then describe the situation for the year 1997, which is shown graphically in figure 51. To make the ratios clearer, the areas in the figure are proportional to the approximate DM-figures. The dimension of the total tangible assets in Germany is shown as a rectangular block and the aggregate output as a circle. A quarter of the assets block is apportioned as privately owned share – largely as housing property – with a value of 4,000 billion DM. The remaining part of the block, which has a value of 12,000 billion DM, corresponds to the economically productive and interest-bearing tangible assets. Straddling both parts, as of 1996, the total level of debts standing at 8,500 billion DM, is shown as the grey area. Figure 51
As one seldom can have a look into private calculations, the calculations of some public prices are given, as examples, as they appear in the budget of the City of Nuremberg for 1991 in figure 52.
If labour costs and depreciation are particularly low, then interest charges dominate the pricing to quite a large extent – as in the calculation of the rent. If one assumes an interest rate of only 5 per cent and a depreciation rate over hundred years (as is usually assumed for residential housing), then the owner or tenant – over and above the one-off one hundred years depreciation charge – has to pay, in addition the construction costs, virtually five times over due to interest charges. Or, in other words (and this holds good for all tangible assets!), all material commodities used in a political economy are financed once again every twenty years as a result of interest charges. And that quite apart from the depreciation costs, which guarantee the asset replacement and which are included in all prices! For example, if rents are felt to be too high, the reason would not be the unscrupulous character of the landlord (the houses owned by the trade union ‘Neue Heimat’
were not any cheaper, either!), but the fact that all tangible assets in our economic system have to be serviced with interest payments throughout their lifetime. Attention is drawn to the fact that in all the calculation examples up to this point, the total interest cost that is included in them has not been considered, but only those costs that have entered the final level of the calculation. The material costs entering the calculations consist, once again – see figure 19 – of labour costs and capital costs to varying extents, which in turn are formed at the respective previous level. In contrast to value added tax, the amounts of which that have been charged in each suc - ceeding step can be identified, this is not the case with hidden interest charges. There is only a constantly increasing accumulation.